The Ministry of Finance of the Russian Federation published the Extract from the Decision of the Subcommission of the Government Commission for Control over Foreign Investments in the Russian Federation (the “Subcommission”) No. 171/5 dated 7 July 2023, which unifies and clarifies the requirements for deals on sale and purchase of stocks (shares) in Russian companies by persons from unfriendly states and payment of dividends to such persons. At the same time, the previously published Extracts from the Minutes of the Subcommission meetings No. 118/1 dated 22 December 2022 and No. 143/4 dated 02 March 2023 are no longer in force.
The table with the main criteria used by the Subcommission when considering the issue of approving transactions is set out below.
Alienation of shares in Russian companies by foreign persons from unfriendly states
Payment of dividends by Russian companies to foreign shareholders from unfriendly states
1) report on an independent market valuation of assets conducted by an appraiser included in the recommended list ;
2) conclusion of the self-regulatory organization (SRO) of appraisers;
3) sale of assets at a discount of at least 50% of their market value;
4) readiness to make a voluntary contribution to the federal budget in the amount of 5% - 10% of the market value of assets within 3 months after the transaction;
5) in respect of PJSC stocks:
6) setting key performance indicators (“KPIs”) for buyers and/or the Company whose assets are sold. The KPIs should provide for preservation of the technological potential and the main economic activity of the Company, preservation of jobs and fulfillment of obligations under existing contracts. The relevant ministry (agency) should control the fulfillment of KPIs;
7) buy-back of the assets at market value on the date of exercise of such call option. the maximum term for buy-back option is 2 years from the date of the transaction;
8) installment payments and transfer of funds under transaction to parties from unfriendly states:
9) whether the applicant has already obtained other necessary consents and approvals (e.g., FAS consent, etc.)
1) the amount of dividends subject to distribution shall not exceed 50% of the company's net profit for the previous year;
2) consideration of the amount of dividends and the procedure for their payment for the previous periods;
3) readiness of foreign shareholders to continue commercial activities in Russia;
4) consideration of the reports of the relevant ministries (agencies) and the Bank of Russia regarding the significance of the Company's activities for the technological and production sovereignty of the Russian Federation, social and economic development of the Russian Federation and/or its constituent entities;
5) fulfillment by the Company of key performance indicators confirmed by federal executive authorities (or Bank of Russia);
6) the possibility to pay dividends on a quarterly basis.
Analysis of the above criteria reveals that already applied in practice criteria, after 1.5 years of the counter-sanctions legislation regime, have finally been formalized. This will undoubtedly raise the awareness of applicants and prepare them for drafting documents and discussion of exit conditions with the relevant ministries (agencies) when approving proposed transactions (operations).
At the same time, there is a tendency to further toughen of counter-sanctions measures against foreign investors when they leave Russian business.
1 The exact amount of payment depends on the discount used in a transaction